Unleashing U.S. Oil Industry Offers Biden Path To Avoid Energy Crisis

If there was ever a time for President Joe Biden to call a truce with America’s oil and gas producers by pausing his climate agenda, now is the time.

War in Europe never ends well for the world. Russia’s invasion of Ukraine is a game-changer that, at worst, threatens global disorder. At a minimum, Putin’s brazen aggression promises sustained turmoil in markets – and none appear more vulnerable than energy due to Russia’s outsized importance to the global oil and natural gas supply. 

While full-scale military conflict between Russia and the West is unlikely, a deep economic war looks inevitable. Russia cannot win an outright economic war, but it does have a significant weapon to wield – oil and gas exports. Russia is the world’s third-largest oil producer, and it accounts for 27 percent of Europe’s oil imports and 40 percent of its gas imports. 

This week’s escalation of the conflict immediately jeopardizes up to 1 million barrels a day of crude supplies that transit through Ukraine and the Black Sea by pipeline, but the long-term disruptions could be far more significant. 

Oil prices already breached $100 a barrel this week – their highest level since 2014 – and consultancy Rystad Energy says they could surge to around $130 a barrel in coming weeks and months. JP Morgan Chase’s forecast is more draconian. It reckons that a full-scale Russian invasion of Ukraine could prompt oil flows to drop by 2.3 million barrels a day, boosting prices to $150 a barrel and reducing global GDP by 1.6 percent.

Consumers will feel the squeeze at the gas pump and in their power bills. The reality is that significantly higher prices are on the horizon in Europe and overseas because oil and natural gas are global commodities.

Putin likely timed the invasion of Ukraine to coincide with the tightening energy markets to gain additional leverage against the energy-hungry West. Europe has suffered from a gas and power supply crisis since late last year, with crude prices rising sharply since December due to dwindling spare production capacity within the OPEC+ cartel, which has struggled to add enough supply to meet growing demand. 

Outside of a handful of producers in OPEC+, which Saudi Arabia and Russia lead, there is little spare production capacity that can be tapped fast enough to make up for supply disruptions. Global spare capacity is around 3 million barrels a day, which is an oil market of roughly 100 million barrels a day, does not offer much of a cushion.

The U.S. and Europe are lining up more sanctions to punish Russia and hopefully get it to stand down. But it would seem that the toughest sanctions – those that hit Russia’s energy exports – are off the table because of European dependence on Russian oil and gas and already high commodity prices. 

An increasingly erratic Putin may opt to wield the energy weapon himself and cut off flows to Europe. While that would hurt Russian export revenues, Moscow has socked away $640 billion in foreign currency reserves in recent years, perhaps with this moment in mind. 

For the United States, the smartest move now is to enhance its domestic energy security by boosting American oil and gas production. This would help keep consumer prices in check at home and make supplies available for export to Europe to reduce the continent’s dependence on Russia. 

However, Biden’s ambitious climate agenda has put the administration at odds with domestic oil and gas producers over the past year. From the cancellation of the Keystone XL pipeline to attempts to block new lease sales in federal areas, the Biden administration has worked overtime to “keep it in the ground.”

Europe and United States under Biden have governed as if the zero-carbon energy transition is nearly complete. The reality is that it has barely begun. It will take decades to move global energy systems away from fossil fuels and toward full electrification under renewable power. 

In the meantime, American shale can provide the additional barrels that the market now so desperately needs. As I’ve said before, shale could be doing much more to relieve global supply tightness. 

Shale producers have the unique ability to bring wells to production in a relatively short period, often within a matter of months. While the shale industry has limited investment to satisfy shareholder profit demands, current prices are tempting many to resume exploratory drilling. Those investment decisions have been made more difficult, however, by a White House actively working against an all-of-the-above energy policy. 

Biden has a choice. He can dither at the margins with stopgap measures like tapping the Strategic Petroleum Reserve – which can provide, at best, temporary price relief – or continue to beg Saudi Arabia to pump more oil. Or he can make peace with the domestic oil and gas sector and call on it to increase output and deflate a geopolitical risk premium that has ballooned to add up to $15 to the price of a barrel of oil. 

Energy security is national security. Enhancing our domestic energy supplies will give America and our European allies more options to deal with Putin in this conflict, and whatever comes next.